Nokia posts better-than-expected Q1 result

Black ink sends share price soaring

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Mobile telephone giant Nokia saw its result collapse in the first quarter of this year. Sales of handsets declined by one fifth. Profitability had fallen sharply from a year earlier, and Nokia Siemens Networks showed a considerable loss.
      However, in spite of the poor result, the decline was not as bad as had been expected, and Nokia’s share price surged on the Helsinki Stock Exchange by 9.4 per cent.
     
Profitability in mobile devices was slightly better than expected, and in spite of the economic crisis, Nokia gave a relatively positive assessment for the future.
      Nokia Executive Vice President, Chief Financial Officer Rick Simonson said that while the mobile phone market has not hit bottom yet, much inventory was sold in the early part of the year, adding to confidence in the future.
      CFO Simonson also noted that whereas Nokia’s competitors are either breaking even or showing a loss, Nokia is still making a profit. On Friday, Nokia’s rival Sony Ericsson reported a pretax loss of EUR 370 million.
     
Destocking of inventory is something of a double-edged sword for Nokia. In the short term it reduces orders by service providers and distributors. In the long term, orders grow, because retailers need to have about 100 million mobile devices in stock, so that the global distribution network can respond to market fluctuations.
      Nokia’s result was burdened by EUR 459 in non-IFRS results exclusions, resulting in net loss before tax of EUR 12 million. The largest single items were in amortization of intangible assets, and in acquisition costs. Intangible assets include remunerative rights and assets such as licences, patents, and trade marks.
      Net financial expenses were EUR 77 million, consisting mainly of the loan taken out to buy the map company Navteq.
     
Nokia’s operating profit was EUR 514 million, which is 74 per cent lower than in the first quarter of 2008. The 74 per cent fall in the result per share was approximately in line with market expectations.
     
Nokia’s sales declined most in Latin America in the early part of the year. The number of handsets sold in the region went down by 45 per cent from January-March last year.
      According to Simonson, the recession hit Latin America slightly later than it hit the rest of the world. Therefore, the dismantling of inventory is still in the early stages there.
      North America shows budding signs of improvement. Nokia sales grew there by 31 per cent from the beginning of last year. Sales volume was still very low, however. At the beginning of the year, Nokia sold only slightly more than three million phones in North America.
     
Smartphones remain a problem for Nokia. Although it is clearly the market leader in the field, Nokia’s market share has fallen sharply. On the basis of figures put out by Nokia, its market share was 38 per cent in the first quarter. Early last year, the market share was 44 per cent.
      Demand seems to be lagging for telephones of the N series, which have a high retail price and a good profit margin.
      “In the N series, we have lacked a clear flagship product after the N95. we strongly believe that the N97 is our next top product”, Simonson says.
      Making up for the decline in sales of the N series is the E series, which are also at the high end of the price range, and which sold 3.3 million units in Q1. The proportion of cheaper models in total sales has grown, which can be seen in a decline of the average sales price.
      Simonson is not at all worried that Nokia would be turning into a manufacturer of cheap phones.
      “In the cheapest phones our balance is clearly better than with any of our competitors. Besides, we are the only company that is a strong competitor in all price ranges”, Simonson said.

More on this subject:
 Nokia staff eagerly snap up severance package offer

Previously in HS International Edition:
  Nokia stops using subcontractors in mobile phone manufacture (26.3.2009)
  Nokia cutting 700 more jobs in Finland (18.3.2009)
  Economic crisis casts a long shadow on Nokia fourth-quarter result (23.1.2009)

Links:
  Nokia: Quarterly and annual information

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